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VIETNAM – Gain report sees new crop slightly down on year

Vietnam will produce 29.3 million bags in marketing year 2014/15, slightly down from a record high of 29.8 million bags, according to a revised estimate contained in the USDA semi-annual Gain Report released on Wednesday.

It should be remembered that Volcafe released earlier this week a pessimistic forecast concerning Vietnam pegging this year’s production at 27.4 million bags down from 30 million bags in 2013/14.

Vietnam will begin this Marketing Year (MY2014/15) with very high beginning stocks, following record production and slow export pace during the first four months of the previous MY (MY2013/14).

Although export pace picked up the last eight months of the last MY, stocks are forecast at a record high at just about 3.6 million bags (approximately 218 thousand metric tons (TMT)).
Vietnam’s coffee cultivated area continues to expand in major coffee growing areas, despite the

Government of Vietnam (GOV)’s recommendation to maintain area at 500,000 hectares (ha). Post’s estimate (taking into account information from the Ministry of Agriculture and Rural Development, Provincial Departments of Agriculture and Rural Development, and the local coffee industry) puts total coffee area at 670,000 ha in 2014, a 5 percent rise from 2013. Actual coffee area likely exceeds the GOV’s official estimate and trader estimates.

Based on very good weather this growing year, Post revises its forecast of MY2014/15 production up slightly to 29.3 million bags, or 1.76 MMT, a slight drop from the record production of the previous MY due to slightly lower Robusta yield and weather-induced yield loss in some Arabica growing areas.

Post forecasts MY 2014/15 total exports at 26.6 million bags, or 1.59 MMT GBE, slightly below the previous MY due to anticipated increased export competition from India and Indonesia.

Post also revises its estimate of coffee production in MY 2013/14 up to 29.8 million bags or 1.79 MMT, a record level. Given record production and record exportable supply, green bean and total exports for MY 2013/14 are also revised upwards to 25.8 million bags or 1.55 MMT, and 26.8 million bags (1.6 MMT) GBE, respectively.

Post maintains its estimate of MY 2014/15 domestic consumption at 2.08 million bags, or 125 TMT GBE, a growth rate of about 4 percent year-on-year.

Coffee cultivated area continues to expand in the major coffee growing areas in Vietnam, especially in Dak Nong, Gia Lai and Lam Dong (mainly Robusta coffee areas), according to local exporters and traders.

Post updates the coffee growing areas based on estimates from MARD, Provincial Departments of Agriculture and Rural Development, and local coffee industry.

In MY 2014/15, Vietnam’s total coffee area is estimated at 670,000 ha, a 5.4 percent increase from 636,000 ha in 2013. In 2014, Arabica cultivation, mainly in Lam Dong, Son La, and Quang Tri provinces, is estimated at about 45,000 ha, accounting for about 6.7 percent of total coffee area. Vietnamese farmers continue to expand coffee area in response to high world prices.

Local growers and exporters observed that the weather, overall, was quite favorable for the development of coffee trees during the 2014/15 crop. The Central Highlands (Dak Lak, Gia Lai and Kontum Provinces) received good rains from the middle of April until August. After persistent rains, better sunshine in late August and early September provided for fairly good cherry development.

According to some local exporters, coffee yield is forecasted to be slightly lower, but that loss is almost fully made up by continued area expansion. Some growers reported yield loss due to the coffee trees
being stressed by the record production the previous MY.

Additionally, some Arabica areas were damaged by cold weather and / or partial dryness. Although Post is forecasting Arabica production to drop 7 percent to almost 1.1 million bags (about 66 TMT), overall coffee production will remain very high. Post revises its forecast for MY2014/15 production up slightly to 1.76 MMT or 29.3 million bags.

According to data from MARD, Global Trade Atlas (GTA), and local traders, Vietnam exported a record, 25.8 million bags, or 1.55 MMT of green coffee beans in MY 2013/14, an increase of about 8.3 percent from the previous MY.

Export volume increased significantly from February 2014 to the end of the MY as export prices increased and farmers began to sell their stocks. Although the government imposed stricter enforcement of truck weight limits in different areas, which reportedly focused on the Central Highlands and affected the movement of coffee to ports in Southern Vietnam, monthly exports still exceeded monthly exports during the previous MY for each month after January.

Post estimates MY 2013/14 total coffee exports, including green beans, roasted and ground, and instant coffee, at 26.8 million bags GBE, or 1.6 MMT GBE, due to record green bean exports and increasing processed coffee product exports. Soluble, instant coffee exports grew about 20 percent in MY 2013/14 to 900,000 bags or about 54 TMT GBE.

Vietnam’s processed coffee products, roasted and ground, and instant coffee exports have grown significantly in recent years. China, Philippines, Russia, South Korea, Japan, Taiwan, Israel, and the U.S. have become important export markets for Vietnam’s instant and roasted and ground coffee.

Post estimates that MY 2013/14 processed coffee product exports (including roast and ground, and instant coffee) will increase to 1,020 thousand bags, or 61 TMT of GBE, about a 19 percent increase over the previous year due to growing instant coffee exports.

Post estimates MY 2014/15 total coffee exports at 26.6 million bags, or 1.59 MMT GBE. Although exportable supplies are forecast at a record level in MY 2014/15, total exports are forecast slightly below the previous MY due to anticipated increased export competition from India and Indonesia

In MY 2013/14, Vietnam exported coffee beans to 73 countries worldwide. The top fifteen markets accounted for 71 percent of total green coffee bean exports, down from 83 percent of total green bean exports the previous year. The United States remained the largest importer of Vietnamese green coffee beans; Germany remained the second largest importer.

According to official data from Vietnam’s General Customs Office (GCO), General Statistics Office (GSO), and MARD, in MY 2013/14, Vietnam exported 1.65 MMT (all types of coffee products, including green bean, roast and ground, and instant coffee) valued at about $3.35 billion. This is an increase of 14.7 percent in volume and 10 percent in value over the previous MY

Export prices
The average export price of Vietnam’s Robusta coffee in MY 2013/14 was $1,858/MT (FOB HCMC), a drop of 3 percent from the previous MY ($1,919/MT), and 6 percent from MY 2011/12. The decline can be attributed to a significant drop in world prices in the first five months of this MY. World and Vietnamese coffee prices started increasing in February and have been fairly stable until the end of the MY.

Vietnam coffee growers and local exporters remain profitable despite the large crops in MY 2012/13 and 2013/14, due to rising world prices, attributed to the drought problems in Brazil. This trend will continue into MY2014/15.

The average export price in October 2014 was $2,072/MT, a rise of 5.3 percent over the previous month, and up 24.6 percent over the same month a year ago ($1,663/MT). On November 4, 2014, the export price was $2,011/MT (FOB Ho Chi Minh City basis) for ungraded Robusta green beans, according to the local coffee industry. The high prices will spur larger early season exports compared to the past two MYs.

Domestic prices
Vietnam’s average domestic coffee price for Robusta common ungraded coffee beans in MY2013/14 was VND37,472/kg ($1.77) in Dak Lak province, VND 36,970/kg ($1.74) in Lam Dong province, VND37,506/kg ($1.77) in Gia Lai province, and VND 37,379/kg ($1.76) in Dak Nong province, the largest coffee growing areas in Vietnam.

Prices dipped in November 2013 as the main harvest began but then steadily increased in December stabilizing by March 2014 between VND39,000 and 40,800/kg.

Average farm gate prices in Dak Lak and Lam Dong provinces in October 2014 were quoted between VND40,700/kg ($1.92) – 40,900/kg ($1.93), an increase over the previous month. Accordingly, prices above VND40,000/kg will motivate farmers to continue to sell their coffee beans into the export pipeline. At current prices, coffee growers will likely harvest and sell their crops quickly during the beginning of MY2014/15.

According to local estimates, Vietnam will bring forward about 218 TMT of coffee beans (about 3.6 million bags), a record high stocks level, to start the MY 2014/15.

As of the end of September 2014, beginning stocks for MY 2014/15 are estimated at about 12 percent of total coffee production in MY 2013/14. The carryover stocks include stocks in Ho Chi Minh City-based warehouses, stocks held outside the city by middleman and traders, and a small volume still held by growers.

The beans carried over are often used for loading in October and early November before harvesting of the next crop peaks in the second half of November.

Although there is no official data for coffee stocks available, Post’s initial forecast of MY 2014/15 ending stocks is about 4.9 million bags, or about 292 TMT, which is higher than previous years as green bean exports are forecast to fall slightly, due to strong competition, causing stocks to increase.